City of Orange, Texas v. Levingston Shipbuilding Co.

• Decision Date: 30 June 1958
• Docket Number: No. 16912.,16912.
• Citation: 258 F.2d 240
• Parties: CITY OF ORANGE, TEXAS, Appellant, v. LEVINGSTON SHIPBUILDING COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

258 F.2d 240 (1958)

CITY OF ORANGE, TEXAS, Appellant, v. LEVINGSTON SHIPBUILDING COMPANY, Appellee.

No. 16912.

United States Court of Appeals Fifth Circuit.

June 30, 1958.

J. C. Hinsley, Austin, Tex., Marlin Thompson, Jr., Orange, Tex., for appellant.

N. W. Collier, John P. Blair, Brown, Beard & Collier, Bell & Blair, Beaumont, Tex., for appellee.

Before RIVES, BROWN and WISDOM, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This appeal concerns the validity of the assessment of local ad valorem taxes made by the City of Orange, Texas, on the personal property of Taxpayer's shipyard enterprise. The case finds its way into the Federal Courts solely because of diversity of citizenship. Our disposition of it demonstrates, we think, that while presumably we must accept them, Meredith v. City of Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9, and do the best we can with such matters relating to the intimate relation between local citizens and governmental entities of the State of Texas in a field of law where so many practical adjustments must continuously be made as the process of tax gathering moves on its relentless and unpopular course, the Federal forum is inept, its arsenal of relief is deficient, and Erie Erie R. Co. v. Thompkins, 304 U. S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 compels us to accept state holdings with a good deal of literalism that might not be so pervasive were we free, as a State Appellate Court, to modify, restrict or expand the prior doctrines as trial and error proves the need for change.

We come face to face with this at the very outset. For a major part of the final judgment against which the City appeals is a permanent injunction prohibiting the City from enforcing the 1955 tax assessment. This is in the very teeth of the plain command of the statute.¹ How or why this bald prohibition escaped Court and counsel alike need not concern us. The plain fact is that we scarcely begin consideration of the case until we must summarily overturn a major part of the relief granted without regard to whether a Texas court situated similarly might consider an injunction proper and needful. This has more than procedural implications since, as we understand the Texas decisions, the substantive rights of a Taxpayer complaining of local taxes are markedly different between a suit for injunction prior to levy and defense against an assessment already made but unpaid. City of Houston v. Baker, Tex.Civ.App., 178 S.W. 820 (error refused); City of Wichita Falls v. Cooper, Tex.Civ.App., 170 S.W.2d 777 (writ refused).

In its technical form this case is made up of the City's original suit to recover 1954 taxes which was subsequently removed to the Federal Court; a supplemental complaint filed later in the Federal Court seeking injunction for 1955 taxes subsequently accruing; and the Taxpayer's separate complaint for injunction against the 1955 assessment. All were consolidated for trial and hearing before a Special Master. The Court, adopting the Master's report, held that the 1954 assessment was void and denied recovery to the City but without prejudice to a valid reassessment by the taxing Board; that the City's assessment was void as to 1955, but that the City should have final judgment for the amount which Taxpayer tendered into Court as the amount which might properly have been assessed and granted a permanent injunction forbidding the assertion of any other assessment, lien, claim, suit, etc.

With the injunction out of the way, the suit was simply one for delinquent taxes for 1954 and 1955. In such actions, the taxing authority makes out a prima facie case by the introduction of official tax records and proof of nonpayment. Texas Rev.Civ.Stat.Ann., Art. 7326 (Vernon); State v. Whittenburg, 153 Tex. 205, 265 S.W.2d 569; East and Mount Houston Independent School District v. South Texas Lumber Co., 153 Tex. 535, 271 S.W.2d 795; Joy v. City of Terrell, Tex.Civ.App., 143 S.W.2d 704 (error dismissed). Once such proof is made, as was indisputably the case here, it is incumbent upon Taxpayer to show that the tax levied and assessed was not in accordance with law.²

Taxpayer contends that it established that the assessments for both years were void because of two major deficiencies. First, that a different percentage³ was used for determination of taxable values as between small commercial business establishments and large industrial plants, and as between certain classes of property, and that, important here, the value of 18 or 19 large industrial plants, of which Taxpayer's was one, was based on the so-called "average plant year reproduction cost coefficient"⁴ rather than a percentage of cost as in the case of smaller commercial businesses. Second, that there had been omitted⁵ from the tax rolls pursuant to a purposeful plan other personalty subject to tax having a value in excess of $35,000,000 and comprising, so the Master found, 38% of the total value of all taxable property.

While it is certainly true that Taxpayer, both before the Master and the District Court and here as well, argued most strenuously that both deficiencies imperiled the assessments, the fact is that acts done, as distinguished from words said, show that complaint was limited to the first (different percentage of valuation, notes 3, 4, supra) and did not include the second (omitted property, note 5, supra). For as to 1954 and again as to 1955, Taxpayer tendered $10,017.42 and $5,179.88, respectively, as the amounts which it claimed were due for personal taxes. This was based⁶ on the use of the same percentage figure of 50% of book value (but not less than 50% of cost) as applied generally to business taxpayers without the use of the reproduction cost coefficient factor, note 4, supra. In computing the tenders which it confessed it owed, no credit was taken nor any adjustment made by Taxpayer for any property omitted from taxation, note 5, supra.

Of course, Taxpayer acknowledges that it is not enough under Texas law to show that percentage figures vary as between classes of properties or that one or more types of property are evaluated by a different formula or rule, or even that the use of a different percentage or unique formula involves a violation of the State Constitutional⁷ requirement of uniformity and equality. East and Mount Houston Independent School District v. South Texas Lumber Co., 153 Tex. 535, 271 S.W.2d 795. The limited nature of the relief open to a complaining taxpayer, as well as the heavy burden of proving an actual direct money loss from assessments which violate the State Constitution, is graphically portrayed by the three recent opinions of Justice Calvert for the Supreme Court of Texas.

"If a valuation fixed by a board of equalization is attacked on the ground of unlawful or arbitrary discrimination it is not sufficient to show, comparatively, that in other isolated instances, property of equal or greater value than that in suit, was valued at less, Dallas County v. Dallas Nat. Bank, 142 Tex. 439, 179 S.W.2d 288, or even that other property was omitted from the tax rolls altogether, Sam Bassett Lbr. Co. v. City of Houston, 145 Tex. 492, 198 S.W.2d 879; City of Wichita Falls v. J. J. & M. Taxman Ref. Co., Tex. Civ.App., 74 S.W.2d 524, writ refused; Howth v. City of Beaumont, Tex.Civ.App., 118 S.W.2d 350, no writ, except where the omission was the result of a deliberate and arbitrary plan or scheme to permit certain classes of property to escape their fair share of the tax burden. City of Houston v. Baker, Tex.Civ. App., 178 S.W. 820, writ refused. To prevail on the basis of unlawful discrimination it is not necessary that the taxpayer make a comparative showing with all other property in the county, Dallas County v. Dallas Nat. Bank, supra, but he must make at least a reasonable showing in that respect. Ibid.

"When the attack is made because the board followed an arbitrary plan or scheme of fixing values, the taxpayer, to prevail, must show not only that the plan was an arbitrary and illegal one but also that the use of the plan worked to his substantial injury. Druesdow v. Baker, supra; Rowland v. City of Tyler, Tex.Com. App., supra; Lubbock Hotel Co. v. Lubbock Ind. School Dist., supra, 85 S.W.2d 776 at page 778, where it is said: `A mere theory may not be litigated. * * * There must be more than the mere adoption of a fundamentally wrong principle or method of taxation. The courts grant relief upon "the adoption of a fundamentally wrong principle or method, the application of which substantially injures the complainant."\'" State v. Whittenburg, 153 Tex. 205, 265 S.W.2d 569, 573.

"In the recent case of State v. Whittenburg, 153 Tex. 205, 265 S.W.2d 569, 573, we recognized the right to relief from such an arbitrary plan of taxation. However, if the taxpayer fails to avail himself of the remedies of mandamus and injunction to prevent a taxing authority from putting such a plan into effect, as those remedies were used in such cases as City of Houston v. Baker, Tex.Civ.App., 178 S.W. 820, writ refused, and City of Wichita Falls v. Cooper, Tex.Civ.App., 170 S.W.2d 777, writ refused, his right to relief is limited. * * * Once such a plan is put into effect the litigant may defeat the recovery of taxes only to the extent that they are excessive and he must assume the burden of proving excessiveness. * * * The difficulties to be encountered in making the necessary proof as a basis for relief is the penalty the taxpayer must pay for sitting idly by while taxing authorities put into effect a plan of taxation which deliberately permits certain classes of property to escape taxation. * * *

"The general plan of the board was to assess real property at 60% of its value. In so far as relief was sought upon the basis that unlawful methods used by the board in arriving at values of real property have resulted in excessive — as distinguished from unequal — assessed valuations being placed thereon, only those owners

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